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Portugal

Moderating but resilient growth

Last update – January 2025

Country rating 


LOW RISK FOR ENTERPRISE
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Form of state
 Parliamentory Democracy
Head of state
 Luis Montenegro
Next elections
 2026 (presidential), 2028 (legislative)

Strengths & weaknesses

  • Improved competitiveness thanks to structural reforms (banking sector, pensions, labor market)
  • Friendly business environment
  • Good performance in some industrial and innovative sectors
  • Still high public debt (among the highest in the world) despite fiscal consolidation efforts; minority government can still face fiscal challenges
  • High private sector debt
  • Still complex legal system and poor rail and technological infrastructure

Economic overview

Economic resilience despite multiple global challenges

Portugal has recorded a solid and sustained pace of growth in recent years, with an overall improvement in economic performance from its weak position following the Eurozone sovereign debt crisis. While annual growth averaged +0.9% from 2010 to 2019 (Eurozone: +1.6%), and while Portugal suffered a stronger hit than the region in 2020 given its larger dependence on the services sector, growth tailed the Eurozone’s average in both 2022 and 2023. In 2024, the pace of growth started to stabilize. Despite multiple global challenges, the Portuguese economy still benefits from a strong tourism sector (19.6% of GDP in 2023) and generous inflows from the NGEU instrument. Besides buoyant tourism, we expect private spending and recovering investment to support economic growth, which is likely to reach +1.3% in 2025 and +1.6% in 2026.

Inflation in Portugal declined in 2023 after reaching its peak in October 2023 (10.1% y/y). Core inflation decreased less sharply, with inflationary pressures prompted by the strong growth in nominal wages. Therefore, inflation averaged 2.4% in 2024 and it is expected to reach 1.9% in 2025 and 1.7% in 2026.

Fiscal commitment and further reforms

Portugal has been able to reduce public debt from 134.1% of GDP in 2020 to 97.9% of GDP in 2023, i.e. below 2010 levels, thanks to strong nominal GDP growth and fiscal consolidation reforms. The government balance returned to a surplus in 2023 (after reaching it for the first time in years in 2019), and it is likely to stay positive despite decreasing until 2026. As the fiscal deficit remains low, public debt should stabilize. Along with the EUR22bn allocated to Portugal within the EU Recovery and Resilience Facility, this should give Portugal room to increase public investments, in particular regarding state pensions, public-sector pay, health infrastructure and education. The 2025 budget bill was passed in parliament, a relief for the new center-right minority government, which took office in April 2024. The new budget promises to lift growth and generate a small surplus despite tax cuts for young people and businesses, and hikes in wages and pensions.

    Portugal’s dependency on tourism is a strength but also a weakness, considering the volatility of touristic activities. With almost one in five Portuguese living abroad, Portugal benefits from a non-negligible inflow of remittances from workers located in particular in other European countries.

Minority government comes with uncertainty

Portugal ha quickly emerged as one of the top business destinations in the EU, offering an ideal environment for entrepreneurs, investors and international companies alike. Recent data from Eurostat reveal that business creation has risen significantly, reflecting the Portugal’s effort to support innovation and new business ventures. As the country continues to foster a business-friendly climate, it is becoming an increasingly attractive hotspot for global and domestic investors. The Portuguese government has put in place some measures to reduce bureaucracy which, along with a supportive legal framework, have made it easy for start-ups, foreign companies and Portuguese companies to get off the ground.

Luís Montenegro became the prime minister of Portugal after the March 2024 election. The results gave Montenegro and his center-right Alliance-Democratic only a small margin over the outgoing Premier António Costa’s Socialist Party. This raised uncertainty about the government’s long-term viability as it faces a highly fragmented parliament and depends on the votes of outside political formations. With just 80 seats in the 230-seat legislature, the AD will need the support of either the far-right Chega party, which quadrupled its parliamentary representation to 50 members of parliament, or the center-left PS, which secured 78 seats, to pass legislation.

Trade structure by destination/origin

(% of total, 2023)

Trade structure by product

(% of total, 2023)

Contact 

Maddalena Martini
Allianz SE Branch Rome
+39 (3) 463213764
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